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5 Steps to Reduce Exposure and Deter Fraud

Businesses can often feel they are relatively safe and protected from fraud, especially when they are smaller businesses.  In fact, studies have shown smaller businesses are more vulnerable because they don't have the resources to put the proper safeguards in place and ensure internal controls are working.

A quick list below can assist you in evaluating whether you are doing enough to deter fraud.

1. Most important is the Organizational Environment: create an ethical environment (the tone is set at the top) by implementing appropriate policies and procedures, such as:

a. Ethics and anti-fraud/anti-corruption training annually.  Use performance review time to conduct training with your staff.  Sometimes they need to understand what exactly an ethical breach is and what the organizations level of expectation is regarding behavio in the workplace.

b. Whistleblower system with a 24/7/365 hotline

c. Conflicts of interest policy clearing outlining specifics of gifts, lunches, outside business interests, etc.

2. Risks: identify fraud risks to the business (specific threats, likelihood and impact) as part of regular fraud-risk assessments.

a. How much cash business do you have; do you have 3rd party relationships domestically or internationally; do you do any government contractual work.

3. Controls: implement basic internal controls, such as:

a. Accounting reconciliations, analysis and authorizations.

b. Job descriptions with segregation of duties (for example, separate control of assets from recording and reporting).

c. Physical and IT security - down to the very basics - passwords!

4. People: know the people inside the business (employees, management, officers and directors) and outside (suppliers, creditors, customers):

a. Proper hiring practices (background and reference checks).

b. Credit checks.

c. Audit clauses for suppliers/contractors.

d. Adherence to business ethics for suppliers - share your Code of Conduct or Code of Ethics with your key suppliers and ask them for their adherence to the Code.

e. Identify and watch for personal red flags (i.e. employees living beyond means, defensive attitude; suppliers with close relationship to an employee, no street address only a mailbox; customer close relationship with employee, same address as employee, frequent returns/voids; general lack of proper documentation, vague explanations, documents appear altered or contain spelling mistakes).

f. Educate people about fraud through training.

g. Maintain appropriate employee support programs.

5. Monitoring: monitor the control environment and react to changes.



1. Don’t panic: follow the fraud policy (if there is one) and maintain confidentiality.

2. Gather and secure basic evidence.

3. Contact legal counsel and/or police.

4. Repeat steps 2 and 3, contacting other advisers (i.e. forensic accountants, IT, private eye).

5. Consider options in consultation with legal, HR and financial advisers (where applicable), including:

a. Discipline, suspend or terminate employee.

b. Claim fidelity insurance (recovery of loss and costs).

c. Civil lawsuit (recovery of loss and costs).

d. Criminal charges (restitution order)

e. Do nothing and consider the cost/benefit analysis and consideration of another incident.

Fraud Checklist

photo Amanda Nieweler
About the Author
Amanda writes for WhistleBlower Security about ethics, compliance, workplace culture, and whistleblower hotlines. Amanda brings her nearly two decades of risk and compliance experience to the WBS blog where she is dedicated to helping people and companies promote speak-up cultures.